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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
 


 

☑


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



 
 

For the fiscal year ended February 29, 2024



 
 

OR



 

☐


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



 
 

For the transition period from _____________to______________



 
Commission file number 0-13394
 

VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)
 



     Georgia


58-1217564




     (State of Incorporation)


(IRS Employer Identification No.)



 
 


5155 King Street, Cocoa, Florida
32926



 (Address of principal executive offices)


(Zip code)



 
 


Registrant's telephone number, including area code:
  (321) 784-4427


                   
Securities Registered Pursuant to Section 12(b) of the Act:



    Title of each class


Name of each exchange on which registered




Common Stock, no par value


OTCMKTS



 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.            YES ☐      No ☑
 
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.         YES ☐      No ☑ 
 
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ NO ☐ 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☑    No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 



Large accelerated filer ☐


Accelerated filer ☐




Non-accelerated filer ☐


Smaller reporting company ☑



 

Emerging growth company ☐



 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐
 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES ☐ NO ☑
 
As of August 31, 2023, the aggregate market value of the voting and non-voting common equity held by non-affiliates based upon the closing sales price for the Registrant’s common stock as reported in the Over the Counter Markets “OTCMKTS” was $304,096.
 
The number of shares outstanding of the registrant’s Common Stock as of May 1,2024 was 5,878,290.
 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be delivered to stockholders in connection with our 2024 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. In addition, certain exhibits previously filed with the registrant’s prior Forms 10-K, Forms 8-K, Form S-18 and Schedule 14A are incorporated by reference in Part IV of this Form 10-K.
 

 

 

 

 
VIDEO DISPLAY CORPORATION
TABLE OF CONTENTS



ITEM
NUMBER

 

PAGE
NUMBER



 

PART I

 



Item 1.


Business.


2




Item 1A.


Risk Factors.


5




Item 1B.


Unresolved Staff Comments.


7




Item 2.


Properties.


8




Item 3.


Legal Proceedings.


8




Item 4.


Submission of Matters to a Vote of Security Holders.


8



 

PART II

 



Item 5.


Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

9



Item 6.


Selected Financial Data.


9




Item 7.


Management’s Discussion and Analysis of Financial Condition and Results of Operations.


10




Item 7A.


Quantitative and Qualitative Disclosures About Market Risk.


14




Item 8.


Financial Statements and Supplementary Data.


15




Item 9.


Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.


36




Item 9A.


Controls and Procedures.


36




Item 9B.


Other Information.


37



 

PART III

 



Item 10.


Directors, Executive Officers and Corporate Governance.


38




Item 11.


Executive Compensation.


38




Item 12.


Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

38



Item 13.


Certain Relationships and Related Transactions, and Director Independence.


38




Item 14.


Principal Accounting Fees and Services.


38



 

PART IV

 



Item 15.


Exhibits, Financial Statement Schedules.


39



 

Signatures


40



 



 





 



 
PART I
 
Item 1. Business.
 
General
 
Video Display Corporation and subsidiaries (the “Company”, ”us”, “we” or “VDC”) is a provider and manufacturer of video products, components, and systems for visual display and presentation of electronic information media in a variety of requirements and environments. The Company designs, engineers, manufactures, markets, distributes and installs technologically advanced display products and systems, from basic components to turnkey systems, for government, military, aerospace, medical, industrial, and commercial organizations. The Company markets its products worldwide primarily from facilities located in the United States. Please read the comments under the caption “Forward looking statements and risk factors” in Item 1A Risk Factors of this Annual Report on Form 10-K.
 
Description of Principal Business
 
The Company generates revenues from the manufacturing and distribution of displays and display components. The Company operates primarily in two divisions: simulation, training and display products, and cyber secure products and services. The Company sold it’s two business subsidiaries in Kentucky, Lexel Imaging and Unicomp LLC on December 1, 2023.
 
Consolidated Net Sales by division for fiscal 2024 are comprised of the following:
 
Simulation, Training and Display Products (92%)
Cyber Secure Products (8%)         
 
A more detailed discussion of sales by category of product is included under the section entitled “Principal Products by Division.”
 
The Company’s manufacturing and distribution facilities are located in Florida.
 
The Company continues to explore opportunities to expand its product offerings in the display industry. The Company anticipates that this expansion will be achieved by adding new products in the rugged displays or by acquiring existing companies that would enhance the Company’s position in the display industry. Management continually evaluates product trends externally in the industry and internally in the divisions in which the Company operates.
 
Segment Information
 
We operate and manage our business as one segment. The two divisions have similarities such as the types of products and markets served. Therefore, we believe they meet the criteria for aggregation under the applicable authoritative guidance and, as such, are reported as one segment within the Consolidated Financial Statements.
 
Principal Products by Division
 
Simulation, Training and Display Products
 
The Company’s simulation, training and display products operations are conducted in the VDC’s Cocoa, Florida location. Product lines include:
 


 

•


Dome Aircraft Simulator Display Systems





 

•


Multi-Faceted Aircraft Simulator Display Systems





 

•


Video Walls for Broadcast and Control Centers





 

•


Rugged Video Walls for Combat Information Center (CIC)





 

•


Rugged Flat Panel Displays and Computers





 

•


TEMPEST Products





 

•


TEMPEST Services





 

•


Projector and Monitor Upgrades





 

•


Projection Screens



 



2





 



 
These product lines are used by the military branches such as the Navy and Air Force and various government agencies such as the Department of Defense and the Department of Energy. VDC also supplies direct view video walls into both the Command and Control and Broadcast markets.
 
This portion of the Company’s operations, which contributed approximately 92% of fiscal 2024 consolidated net sales, involves the design, engineering, and manufacturing of digital projector display units and rugged displays. The Company customizes these units for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications. Because of the Company’s flexible and cost-efficient manufacturing, it is able to handle low volume orders that generate higher margins.
 
This portion of the Company’s operations targets niche markets where competition from major multinational electronics companies tends to be lower. The prime customers for these products include defense, security, training, and simulation areas of the United States of America (U.S.) and foreign militaries as well as the major defense contractors such as the Boeing Company, L-3 Communications Corporation, DRS Laurel Technologies, and others. Flight simulator displays are produced to provide a full range of flight training simulations for military and commercial applications.
 
Cyber Secure Products
 
The Company acquired the AYON Cyber Security (“ACS”) division in March 2012. ACS was formerly known as Hetra Products and most recently as StingRay56 before becoming part of Video Display Corporation. ACS specializes in advanced TEMPEST technology, also known as Emanation Security (EMSEC), products and custom engineering solutions to include extreme environmental performance and survivability technologies (MIL-STD-810 and DO-160) in support of military forces, intelligence agencies, prime contractors and niche commercial sectors worldwide. ACS has a long history of specializing in TEMPEST technology. In addition to its TEMPEST products and services, the business also provides various contract services to government agencies and prime contractors. Services performed include design and testing solutions for defense and niche commercial uses worldwide. This division represented approximately 8% of fiscal 2024 consolidated net sales.
 
Patents and Trademarks
 
The Company holds patents with respect to certain products and services. The Company also sells products under various trademarks and trade names. The Company believes that success in its industry primarily will be dependent upon incorporating emerging technology into new product line introductions, frequent product enhancements, and customer support and service.
 
Seasonal Variations in Business
 
Historically, there has not been seasonal variability in the Company’s business.
 
Working Capital Practices
 
The accompanying consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has sustained losses for four of the last five years. The accumulated losses reported has resulted from a combination of lower revenues at certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position is presented as follows:
 


 
 

February 29,
2024

 
 

February 28,
2023

 


 
 
 
 
 
 
 
 
 



Working capital

 
$
(1,117
)
 
$
(1,297
)



Liquid assets

 
$
169
 
 
$
361
 


 
Management’s plans with regard to improving working capital includes increasing marketing efforts in its ruggedized displays, and small specialty displays. The Company is developing new products for customers in the ruggedized display section of its business. The Company has orders for ruggedized display products which are being engineered by the Company’s engineering department which will be delivered in the Company’s next fiscal year. The Company sees the ruggedized display business as repeatable business and a source of a steady income stream. The Company sold its two business units in Kentucky, Lexel Imaging and Unicomp on December 1, 2023.
 



3





 



 
The Company’s efforts to increase revenues by upgrading its sales and marketing efforts are showing results with an increase in the Company’s revenue in the current fiscal year, especially in ruggedized products. These efforts have increased revenues from last year and will increase them even more in the upcoming fiscal year as the Company’s business typically has longer lead times from initial contact to a sale and the including the amount of time to develop the products by engineering. Furthermore, supply chain challenges have slowed down production of certain products due to long lead times on critical items of production, impacting cash flow.
 
The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The Company has not automatically replaced employees who have left the Company while it works to increase business. The Company reduced expenses further by closing the Tucker, Georgia facility on March 31, 2022.
 
If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
 
 
 
Concentration of Customers
 
The Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the military, industrial and avionics industries. The Company had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs that comprised approximately 86% and 51% of consolidated net sales for fiscal 2024 and 2023, respectively. Sales to foreign customers were approximately 3% and 8% of consolidated net sales for fiscal 2024 and 2023, respectively. The Company had two customers, DRS Laurel Technologies and L3Harris with 53% and 12% of the Company’s consolidated net sales in fiscal 2024. The Company attempts to minimize credit risk by reviewing customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.
 
Backlog
 
The Company’s backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within twelve months. The Company’s backlog was approximately $5.6 million on February 29, 2024, and $9.9 million on February 28, 2023. It is anticipated that more than 90% of the February 29, 2024, backlog will ship during fiscal 2025.
 
Environmental Matters
 
The Company's operations are subject to federal, state, and local laws and regulations relating to the generation, storage, handling, emission, transportation, and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on the Company's consolidated financial condition, results of operations, or cash flow in the past and are not expected to have a material adverse impact in the foreseeable future.
 
Research and Development
 
The objectives of the Company’s research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to enhance its existing product line by developing alternative product applications to existing display systems and electron optic technology.
 
Employees
 
As of February 29, 2024, the Company employed 35 persons on a full-time basis. Of these, 5 were employed in executive, administrative, and clerical positions, 3 were employed in sales and distribution, 9 in engineering, and 18 were employed in manufacturing operations. The Company believes its employee relations to be satisfactory. No employees are under collective bargaining agreements.
 



4





 



 
Competition
 
The Company believes that it has a competitive advantage in the display industry due to its ability to engineer custom display solutions for a variety of industrial, military and commercial applications, its ability to provide internally produced component parts, and its manufacturing flexibility. As a result, the Company can offer more customization in the design and engineering of new products. With the operations of VDC Display Systems, Jaco Display Solutions and AYON Cyber Security, the Company believes it has become one of the leading suppliers within each of these specialty display markets.
 
The Company now operates in several markets in the areas of custom electronic solutions. The Company has reentered the ruggedized display business and is actively looking to grow this business. The Company’s VDC Display Systems division specializes in projector design and video solutions, and the Company’s AYON Cyber Security division specializes in making electronic devices cyber secure. The Company specializes in the design and installation of video walls focusing on configurable visual solutions for command and control and other large format visuals in the energy, utility, transportation, industrial and security markets.
 
The Company’s ability to compete effectively in this market is dependent upon its continued ability to respond promptly to customer orders and to offer competitive pricing.
 
Item 1A. Risk Factors.
 
Forward looking statements and risk factors
 
All statements other than statements of historical facts included in this report, including, without limitation, those statements contained in Item 1, are statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934. The words “expect”, “estimate”, “anticipate”, “predict”, “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) trends affecting the Company’s consolidated financial condition, results of operations or cash flows; (ii) the Company’s financing plans; (iii) the Company’s business and growth strategies, including potential acquisitions; and (iv) other plans and objectives for future operations. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those predicted in the forward-looking statements or which may be anticipated from historical results or trends.
 
Our Company operates in technology-based markets that involve a number of risks, some of which are beyond our control. The following discussion highlights some risks and uncertainties that investors should consider, in conjunction with all other information in this Annual Report on Form 10-K. Additional risks and uncertainties not presently known to the Company may impair the Company’s business and operations. If any of the following risks actually occur, the Company’s business, consolidated financial condition, cash flows, or results of operations could be materially affected.
 
History of losses and declining liquidity 
 
Declining liquidity and lack of credit availability could have important consequences, including:
 


 

•


generating insufficient cash flows from operating activities to meet our payment obligations;



 


 

•


increasing our vulnerability to general economic and industry conditions;



 


 

•


requiring a substantial portion of cash flow for operating activities and as a result reducing our ability to use our cash flow to fund capital expenditures, capitalize on future business opportunities and expand our business and execute our strategy;



 


 

•


causing us to make non-strategic divestitures;



 


 

•


limiting our ability to adjust to changing market conditions and to react to competitive pressure and placing us at a competitive disadvantage compared to our competitors who may have access to a line of credit.



 



5





 



 
Changes in government priorities may affect military spending, and our consolidated financial condition and results of operations or cash flows could suffer if their purchases decline.
 
We currently derive a portion of our net sales (86% in fiscal 2024) from direct and indirect sales to the U.S. government. If we are unable to replace expiring contracts, which are typically less than twelve months in duration, with contracts for new business, our sales could decline, which would have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows. We expect that direct and indirect sales to the U.S. government will continue to account for a substantial portion of our sales in the foreseeable future. We have no assurance that these government-related sales will continue to reach or exceed historical levels in future periods.
 
Our inability to secure financing could negatively affect the future of our business.
 


 

●


Our inability to secure financing with our current bank or others, if necessary, could expose us to the risk of losing business; and



 


 

●


Our inability to secure financing with a commercial bank could expose us to the risk of increased interest rates.



 
 
Our industry is highly competitive and competitive conditions may adversely affect our business.
 
Our success depends on our ability to compete in markets that are highly competitive, with rapid technological advances and products that require constant improvement in both price and performance. In most of our markets, we are experiencing increased competition, and we expect this trend to continue. This environment may result in changes in relationships with customers or vendors, the ability to develop new relationships, or the business failure of customers or vendors, which may negatively affect our business. If our competitors are more successful than we are in developing new technology and products, our business may be adversely affected.
 
Competitive pressures may increase or change through industry consolidation, entry of new competitors, marketing changes or otherwise. There can be no assurance that the Company will be able to continue to compete effectively with existing or potential competitors.
 
Competitors or third parties may infringe on our intellectual property.
 
The Company holds patents with respect to certain products and services. The Company also sells products under various trademarks and trade names. Should competitors or third parties infringe on these rights, costly legal processes may be required to defend our intellectual property rights, which could adversely affect our business.
 
Future acquisitions may not provide benefits to the Company.
 
The Company’s growth strategy includes expansion through acquisitions that enhance the profitability and shareholder value of the Company. The Company continues to seek new products through acquisitions and internal development that complement existing profitable product lines. There can be no assurance that the Company will be able to complete further acquisitions or that past or future acquisitions will not have a material adverse impact on the Company’s consolidated operations.
 
If we are unable to retain certain key personnel and hire new, highly skilled personnel, we may not be able to execute our business plan.
 
Our future success depends on the skills, experience, and efforts of our senior managers. The loss of services of any of these individuals, or our inability to attract and retain qualified individuals for key management positions, could negatively affect our business.
 
Our business operations could be disrupted if our information technology systems fail to perform adequately. 
 
We depend upon our information technology systems in the conduct of our operations and financial reporting. If our major information systems fail to perform as anticipated, we could experience difficulties in maintaining normal business operations. Such systems-related problems could adversely affect product development, sales, and profitability.
 



6





 



 
Changes to accounting rules or regulations may adversely affect our results of operations. 
 
New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our consolidated financial condition or results of operations.
 
The Company’s stock price may be negatively affected by a variety of factors.
 
In addition to any impact the Company’s operating performance, potential future Company sales or repurchases of common stock, the Company’s dividend policies or possible anti-takeover measures available to the Company may have, changes in securities markets caused by general foreign or domestic economic, consumer or business trends, the impact of interest rate policies by the federal reserve board, and other factors outside the Company’s control may negatively affect our stock price.
 
Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid price if you need to sell your shares.
 
Our stock is quoted on the OTC Markets and the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices, if at all.
 
Changes to estimates, or operating results that are lower than our current estimates, may cause us to incur impairment charges. 
 
We make certain estimates and projections in connection with our impairment analyses for other long-term assets. If these estimates or projections change or prove incorrect, we may be required to record impairment charges. If these impairment charges were significant, our consolidated financial position or results of operations would be adversely affected.
 
International factors could negatively affect our business. 
 
A small portion of our consolidated net sales (3% in fiscal 2024) were made to foreign customers. We also receive certain raw materials from foreign vendors. We are subject to the risks inherent in conducting our business across national boundaries, many of which are outside of our control. These risks include the following:
 


 

•


Economic downturns;



 


 

•


Currency exchange rate and interest rate fluctuations;



 


 

•


Changes in governmental policy or laws including, among others, those relating to taxation;



 


 

•


International military, political, diplomatic and terrorist incidents;



 


 

•


Government instability;



 


 

•


Nationalization of foreign assets;



 


 

•


Natural disasters; and supply chain issues



 


 

•


Tariffs and governmental trade policies.



 
We cannot ensure that one or more of these factors will not negatively affect our international customers and, as a result, our business and consolidated financial performance.
 
Item 1B. Unresolved Staff Comments.
 
None.
 



7





 



 
Item 2. Properties.
 
The Company has one location, Cocoa, Florida. The Florida location is leased from a related party at current market rates with the Cocoa, Florida space currently serving as the corporate headquarters location. See Part III, Item 13 Certain Relationships and Related Transactions in this Annual Report on Form 10-K. Management believes the facilities to be adequate for its needs.
 
The following table details manufacturing, warehouse, and administrative facilities:
 



Location

 

Square Feet

 

Lease Expires




Cocoa, Florida

 

34,500

 

February 19, 2025



 
 
 
Item 3. Legal Proceedings.
 
The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.
 



8





 



 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
 
The Company’s common stock is traded on the Over-the-Counter Market (OTCMKTS) under the symbol VIDE.
 
The following table shows the range of prices for the Company’s common stock as reported by the OTCMKTS for each quarterly period beginning on March 1, 2022. The prices reflect inter-dealer prices, without mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
 


 
 

For Fiscal Years Ended

 


 
 

February 29, 2024

 
 

February 28, 2023

 



Quarter Ended

 

High 

 
 

Low 

 
 

High 

 
 

Low 

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



May

 
 
1.70
 
 
 
0.75
 
 
 
1.19
 
 
 
0.91
 



August

 
 
1.15
 
 
 
0.96
 
 
 
1.82
 
 
 
0.93
 



November

 
 
1.15
 
 
 
1.00
 
 
 
2.50
 
 
 
0.72
 



February

 
 
1.06
 
 
 
0.97
 
 
 
2.55
 
 
 
1.09
 


 
There were approximately 120 holders of record of the Company’s common stock as of May 13, 2024.
 
Payment of cash dividends in the future will be dependent upon the consolidated earnings and financial condition of the Company and other factors that the Board of Directors may deem appropriate.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table provides information as of February 29, 2024 regarding compensation plans (including individual compensation arrangements) under which common stock of the Company is authorized for issuance.
 



Stock Option Plan

 

Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights

 
 

Weighted-average
exercise price of
outstanding options,
warrants and rights

 
 

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
first column)

 


 
 
 
 
 
 
 
 
 
 
 
 
 



Equity compensation plans approved by security holders

 
 
200,000
 
 
$
0.82
 
 
 
614,000
 


 
Issuer Purchases of Equity Securities
 
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a continuation of the stock repurchase program and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program. During fiscal 2024 and 2023, the Company did not repurchase any shares of the Company’s stock. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company on February 29, 2024.
 
 
Item 6. Selected Financial Data
 
N/A
 

9

 

 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Overview
 
The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, and simulation display solutions. The Company is organized into the following two interrelated divisions that have similar products and markets served and therefore are aggregated into one reportable segment:
 


 

●


Simulation and Training Products– offers a wide range of projection display systems for use in training, simulation, military, medical, industrial applications, video walls and command and control centers including ruggedized displays.





 

●


Cyber Secure Products – provides advanced TEMPEST technology and (EMSEC) products. This business also provides various contract services including the design and testing solutions for defense and niche commercial uses worldwide.



 
During fiscal 2024, management of the Company focused key resources on strategic efforts to support the efforts of operations to increase market share. The Company also seeks to look for acquisition opportunities that enhance the profitability and shareholder value of the Company. The Company continues to seek new products through acquisitions and internal development that complement existing profitable product lines. Challenges facing the Company during these efforts include:
 
Inventory management - Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its’ carrying amount. The Company operates in an environment of constantly changing technologies. The Company also inventories product to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.
 
Sales generation – Although the Company increased sales this year, it was unable to reduce operating expenses at the needed level to reach profitability. In order to improve revenue generating activities, management is focused on increasing marketing efforts in its ruggedized displays business. The company is focusing efforts on winning major multi-year military programs for ruggedized displays, computers, and other ancillary military products. The company is already seeing positive results with a number of recent awards and increased sales pipeline.
 
 
Operations
 
The following table sets forth, for the fiscal years indicated, the percentages that selected items in the Company’s consolidated statements of operations bear to total revenues (amounts in thousands):
 
(See Item 1. Business – Description of Principal Business and Principal Products for discussion about the Company’s Products and Divisions.)
 


 
 

2024

 
 

2023

 


 
 

Amount

 
 

%

 
 

Amount

 
 

%

 



Net Sales

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Simulation and Training

 
 
7,600
 
 
 
91.6
%
 
 
5,035
 
 
 
89.5
%



Cyber Secure Products

 
 
697
 
 
 
8.4
 
 
 
589
 
 
 
10.5
 



Total net sales

 
 
8,297
 
 
 
100.0
 
 
 
5,624
 
 
 
100.0
 



Costs and expenses

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Cost of goods sold

 
 
5,314
 
 
 
64.0
%
 
 
4,118
 
 
 
73.2
%



Selling and delivery

 
 
670
 
 
 
8.1
 
 
 
456
 
 
 
8.1
 



General and administrative

 
 
2,677
 
 
 
32.2
 
 
 
2,753
 
 
 
49.0
 


 
 
 
8,661
 
 
 
104.3
 
 
 
7,327
 
 
 
130.3
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Loss from operations

 
 
(364
)
 
 
(4.4
)
 
 
(1,703
)
 
 
(30.3
)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Interest expense, net

 
 
(4
)
 
 
(0.0
)
 
 
(15
)
 
 
(0.3
)



Employee retention credit income

 
 
238
 
 
 
2.9
 
 
 
-
 
 
 
0.0
 



Gain on sale of subsidiaries

 
 
370
 
 
 
4.5
 
 
 
-
 
 
 
0.0
 



Gain on disposal of assets

 
 
-
 
 
 
0.0
 
 
 
2
 
 
 
0.1
 



Other income, net

 
 
283
 
 
 
3.4
 
 
 
469
 
 
 
8.3
 



Income (loss) from continuing operations

 
 
523
 
 
 
6.3
 
 
 
(1,247
)
 
 
(22.2
)



Income tax expense

 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 



Net income (loss) from continuing operations

 
 
523
 
 
 
6.3
 
 
 
(1,247
)
 
 
(22.2
)



Loss from discontinued operations

 
 
(655
)
 
 
(7.9
)
 
 
(746
)
 
 
(13.2
)



Net loss

 
 
(132
)
 
 
(1.6
)
 
 
(1,993
)
 
 
(35.4
)


 



10





 



 
Fiscal 2024 Compared to Fiscal 2023
 
Net Sales
 
Consolidated net sales increased 47.5% for the year ended February 29, 2024, compared to the year ended February 28, 2023, and increased 164.4% for the three months ended February 29, 2024, compared to the comparable three months last year. The Display Systems division increased by 50.9% for the year ended February 29, 2024, compared to last year and was up 220.1% for the quarter ended February 29, 2024, compared to the same three months last year. The division sales increased due to new customers for ruggedized products, there are now three major products being produced and sold. Sales of rugged products exceeded over $4.0 million to one customer. Steady sales in specialty displays including sale to one customer of over $1.0 million. The Company is currently developing additional new products for the ruggedized display markets for which it already has orders. The Company’s AYON Cyber Security (ACS) division is up 18.4% for the year ended February 29, 2024 compared to fiscal year ended February 28, 2023, but decreased 15.1% for the three months ended February 29, 2024 compared to the same three months last year. The business relied on primarily service business with not much in product sales.  Activity for products picked up in the fourth quarter leading to a backlog of over $0.3 million at February 29, 2024.
 
Gross Margins
 
Consolidated gross margins increased by 98.1% for fiscal 2024. Gross margin percentage to net sales were 36.0% for fiscal 2024 compared to 26.8% for fiscal 2023. Overall gross margin dollars increased by $1.5 million, $3.0 million versus $1.5 million the prior fiscal year due to increased revenues and better margins.
 
VDC Display Systems (VDCDS) gross margin percentage was 35.1% compared to 27.8% in the prior year and the gross margin dollars were $2,666 thousand compared to $1,401 thousand for the year ended February 29, 2024, compared to the year ended February 28, 2023. For the three months ended February 29, 2024, compared to the same period last year, VDCDS gross margin percentage was 35.3% compared to 6.7%. Gross margin dollars were $894 thousand compared to $53 thousand.
 
ACS gross margin percentage were 45.5% compared to 17.8% and the gross margin dollars were $317 thousand compared to $105 thousand for the year ended February 29, 2024, compared to the year ended February 28, 2023. For the three months ended February 29, 2024 compared to the same period last year, ACS gross margin percentage were 22.3% compared to 13.4% and gross margin dollars were $46 thousand compared to $33 thousand.
 
 
 
Operating Expenses
 
Operating expenses as a percentage of sales decreased to 38.1% for fiscal 2024 from 52.8% in fiscal 2023. Operating expenses as a percentage of sales were lower for fiscal 2024 when compared to fiscal 2023 due to the increase in sales in fiscal 2024 while holding operating expense relatively flat except for additional selling expenses incurred while increasing the sales by 47.5%. Actual administrative expenses decreased by $16 thousand.
 
The Company is working to reduce costs in all areas of the business to bring its cost structure in line with the current size of the business. The Company has structed new commission agreements with both inside and outside personnel which will reduce commissions while not impacting sales. The Company closed the corporate headquarters in Georgia and has merged it into the Florida location, which is saving considerable operating expenses. The Company is expanding its product offerings, primarily in ruggedized displays and in doing so, is adding costs strategically to support those businesses.
 
Interest Expense
 
Interest expense was $4 thousand in fiscal 2024 and $15 thousand for fiscal 2023 related to the Company’s obligations. The interest expense is primarily from the financing lease on the TEMPEST equipment for the cyber security business.  The equipment was paid in full December 1, 2023.
 
Other Income
 
In fiscal 2024, the Company received $238 thousand in retention credit income, $283 thousand income on write off for accrued expense for prior year deferred salary of the CEO, and $370 thousand proceeds from the sale of subsidiaries. This was off -set by $4 thousand for cancelled loan costs.
 



11





 



 
In fiscal 2023, the Company received $498 thousand in proceeds from a class action lawsuit, $2 thousand on the sale of assets and $2 thousand in miscellaneous other. Other expense netted against other income was $31 thousand for the payout of a lawsuit.
 
Income Taxes
 
The Company had a net loss before taxes of approximately $0.1 million in fiscal 2024 and $2.0 million in fiscal 2023 which a full valuation allowance was provided due to historical losses resulting in an effective tax rate of 0%.
 
Liquidity and Capital Resources 
 
The accompanying consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has sustained losses for four of the last five years. The accumulated losses reported has resulted from a combination of lower revenues at certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position is presented as follows:
 


 
 

February 29,
2024

 
 

February 28,
2023

 


 
 
 
 
 
 
 
 
 



Working capital

 
$
(1,117
)
 
$
(1,297
)



Liquid assets

 
$
169
 
 
$
361
 


 
Management’s plans with regard to improving working capital includes increasing marketing efforts in its ruggedized displays, and small specialty displays. The Company is developing new products for customers in the ruggedized display section of its business. The Company received orders for new ruggedized display products, engineered by the Company’s engineering department that were delivered this year and we have repeat orders coming in the next fiscal year. The effort to increase ruggedized products is ongoing and the engineering department is working on other new products which we expect to receive orders and ship in the next fiscal year. The Company has restructured the TEMPEST business to reduce costs and focus on the service side of the business and do product business as it presents itself. The Company sold its two business units in Kentucky, Lexel Imaging and Unicomp, on December 1, 2023, which did not have a viable plan to get to profitability. 
 
The Company’s efforts to increase revenues by upgrading its sales and marketing efforts are showing results with an increase in the Company’s sales, especially in ruggedized products. These efforts have increased revenues from last year and will increase them even more in the upcoming fiscal year as the Company’s business typically has longer lead times from initial contact to a sale and the including the amount of time to develop the products by engineering. The pandemic has also slowed down the process of obtaining new business as many of our government customers and potential customers are still working from home. Furthermore, supply chain challenges have slowed down production of certain products due to long lead times on critical items of production, impacting cash flow.
 
The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The Company has not automatically replaced employees who have left the Company while it works to increase business. The Company reduced expenses further by closing the Tucker, Georgia facility on March 31, 2022.
 
If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
 
Cash used by operations of continuing operations was $0.6 million in fiscal 2024 and used $0.6 in fiscal 2023. During fiscal 2024, the net loss was $0.1 million and adjustments to reconcile net loss to net cash were a loss from discontinued operations of $0.7 million, $0.2 million in depreciation, a non-cash lease cost of $0.2 million, inventory related charges of $0.1 million offset by a gain on the sale of subsidiaries of $0.4 million. Working capital related accounts used $1.1 million, including $1.1 million of inventory, a reduction of operating leases of $0.2 million and $0.1 million change in contract assets and liabilities.  This was offset by changes in accounts payable of $0.3 million and a $.1 million change in prepaid expenses. During fiscal 2023 the net loss was $2.0 million and adjustments to reconcile net loss to net cash were a loss from discontinued operations of $0.7 million, $0.2 million of depreciation, $0.1 million of amortization charges and $0.1 million of non-cash lease charges. Working capital related accounts provided $0.4 million from a decrease in retention credit receivable of $0.4 million, an increase in accounts payable of $0.4 million, a decrease in inventories of $0.3 million and a change in contract assets of $0.2 million.  These items were offset by a decrease in customer deposits of $0.8 million, a decrease in contract assets of $0.2 million and a decrease in operating lease liabilities of $0.1 million.
 
Investing activities of continuing operations used $286 thousand for capital expenditures in fiscal 2024 compared to using $39 thousand in fiscal 2023.
 
Financing activities of continuing operations provided $0.7 million for the year ended February 29, 2024, primarily from additional borrowings from the Company’s Chief Executive Officer less repayments on an equipment lease of $0.1 million. Financing activities provided $0.8 million in fiscal 2023.  The Company received $0.9 million in a related party loan and paid $0.1 million in equipment financing.
 
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program. During fiscal years 2024 and 2023, the Company did not repurchase any of the Company’s stock. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company at February 29, 2024.
 



12





 



 
Transactions with Related Parties and Contractual Obligations 
 
The Company leases a building in Cocoa, Florida, from an entity that is controlled by the Company’s CEO. The building in Cocoa, Florida is the new operational site for both VDC Display Systems, AYON Cyber Security and the corporate office. See Note 10.
 
The Company borrows money from the Chief Executive Officer from time to time to support operations. In fiscal 2024, the Company borrowed approximately $760 thousand bringing the total of the note payable to $2,144 thousand and owes another $141 thousand in rent. There are no repayment terms related to the amounts owed but the Company intends to pay back the CEO when funds are available in fiscal 2025. These amounts are included in the Company’s consolidated balance sheet.
 
 
Contractual Obligations 
 
Future contractual maturities due under operating and finance leases and other obligations at February 29, 2024 are as follows (in thousands):
 


 
 

Payments due by period

 


 
 

Total

 
 

Less than
1 year

 
 

1 – 3
years

 
 

3 – 5
years

 
 

More than
5 years

 



Operating lease obligations

 
$
190
 
 
$
190
 
 
$
-
 
 
$
-
 
 
$
-
 



Note payable -related party

 
 
2,144
 
 
 
2,144
 
 
 
-
 
 
 
-
 
 
 
-
 



Warranty reserve obligations

 
 
4
 
 
 
4
 
 
 
-
 
 
 
-
 
 
 
-
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Total

 
$
2,338
 
 
$
2,338
 
 
$
-
 
 
$
-
 
 
$
-
 


 
 
Critical Accounting Policies and Estimates
 
Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations are based upon the Company’s consolidated financial statements. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include inventory valuation, contract revenue recognition as well as profitability or loss recognition estimates, and the sufficiency of the valuation reserve relating to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:
 
Inventory valuation
 
Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.
 
Revenue recognition
 
The Company recognizes revenue upon transfer of control of the promised products or services to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. VDC derives revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. The Company excludes sales and usage-based taxes from revenue.
 
The Company’s simulation and video wall systems are custom-built (using commercial off-the-shelf products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). The Company recognizes revenue for these systems over time as control is transferred based on labor hours incurred on each project based on the percentage of completion method.
 



13





 



 
The Company recognizes revenue related to its cyber secure products, specialty displays, and some rugged displays at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
 
Timing of invoicing to customers may differ from timing of revenue recognition; however, the Company’s contracts do not include a significant financing component as substantially all invoices have terms of 30 days or less. The Company is applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and does not offer terms extending beyond one year.
 
Income taxes
 
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company has established a valuation allowance of $6.1 million on the Company’s deferred tax assets.
 
The Company accounts for uncertain tax positions under the provisions of ASC Topic 740, which contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At February 29, 2024, the Company did not record any liabilities for uncertain tax positions.
 
Off-Balance Sheet Arrangements
 
The Company does not have during the periods presented, and the Company does not currently have, any off-balance sheet arrangements, as defined under SEC rules.
 
 
Recent Accounting Pronouncements
 
Refer to Note 1, “Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements and their effect on the Company.
 
 
Impact of Inflation
 
Inflation has not had a material effect on the Company's results of operations to date.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company’s primary market risks include changes in technology and government spending. The rapid advances in video and projection technology present a challenge for the Company’s management and engineers to be able to meet the ever-changing demands in the markets in which it operates. The Company did a significant amount of business with the government (86% of revenues) in fiscal 2024. Failure of the government to continue to fund programs in the Company’s markets could have a detrimental effect on the Company.
 

14

 

 
Item 8. Financial Statements and Supplementary Data.
 
 

Video Display Corporation and Subsidiaries
 
Index to Consolidated Financial Statements
 
 
 


Report of Independent Registered Public Accounting Firm, ID # 794

16



 
 



Consolidated Balance Sheets as of February 29, 2024, and February 28, 2023.


18



 
 



Consolidated Statements of Operations for the years ended February 29, 2024, and February 28, 2023.


20



 
 



Consolidated Statements of Shareholders’ Equity (Deficit)for the years ended February 29, 2024, and February 28, 2023.


21




                                                

 



Consolidated Statements of Cash Flows for the years ended February 29, 2024, and February 28, 2023.


22



 
 


Notes to Consolidated Financial Statements

23



 

15

 

 
Report of Independent Registered Public Accounting Firm 
 
To the Shareholders and the Board of Directors
Video Display Corporation
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of Video Display Corporation and subsidiaries (the Company) as of February 29, 2024 ,and February 28, 2023, and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the years in the two-year period ended February 29, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 2024,and February 28, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended February 29, 2024, in conformity with accounting principles generally accepted in the United States of America.
 
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has historically reported net losses or breakeven results along with reporting low levels of working capital. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
Critical Audit Matters
 
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Board of Directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involve especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
 

16

 

 
Inventories
 
Description of the Matter
 
As described in Note 2 to the consolidated financial statements, the Company’s consolidated inventory balance was $2,566,000 as of February 29, 2024. Management values inventories at the lower of cost or net realizable value. Costs include materials, labor and manufacturing overhead and is computed on a first-in-first-out basis. Management evaluates the carrying value of its inventories taking into consideration such factors as historical and anticipated future sales compared to quantities on hand and the prices management expects to obtain for products in its various markets. Management adjusts excess and obsolete inventories to net realizable value and write-downs of excess and obsolete inventories are recorded as a component of cost of goods sold.
 
Auditing management’s estimate of inventory valuation was complex and judgmental as the value estimate was sensitive to significant assumptions, such as changes in technology and aging of the inventory, costing of inventory, and near-term revenue and operating margin projections, which are affected by expectations about future market or economic conditions.
 
How We Addressed the Matter in Our Audit 
 
We obtained an understanding of the Company’s inventory estimation process. To test the value of inventory, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions and the underlying data used by the Company in its analysis. For example, these procedures included, among others, performing procedures to test the existence of inventory, evaluating and testing management’s process for determining the valuation of inventory and testing the classification of inventory.
 
Revenue Recognition – Percentage-of-Completion Method
 
Description of the Matter
 
As described in Note 1 of the consolidated financial statements, for those long-term fixed-price contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Company generally accounts for these contracts using the cost-to-cost measure of progress. Under the cost-to-cost measure of progress, the estimation of progress toward completion is subject to assumptions and variables and requires significant judgment.
 
Auditing the Company’s estimate of total contract costs at completion is especially challenging due to the judgmental and subjective nature of the estimation of remaining costs to complete, including material, labor and subcontracting costs, among others, unique to each revenue arrangement. In particular, the significant estimation related to management’s judgment in estimating contract costs and evaluating changes in the estimates of costs at completion as circumstances change and as new information is received. The revisions in contract estimates can materially affect the Company’s operating results.
 
How We Addressed the Matter in Our Audit 
 
We obtained an understanding and evaluated the Company’s revenue recognition review process. To test the estimate of contract costs to complete, our audit procedures included, among others, testing significant components of the estimate noted above, assessing the completeness of the cost estimates, reviewing changes in the estimates from previous periods and testing underlying data used by management. For example, our procedures included discussing project status with business personnel responsible for managing the contractual arrangements, inspecting evidence to support the assumptions made by management, and evaluating the key assumptions utilized in development of the remaining contract costs to complete the arrangement. We also reviewed documentation of management’s estimates through the reporting date for evidence of changes that would impact estimates as of the balance sheet date.
 
 
/s/ Hancock Askew & Co., LLP
 
 
We have served as the Company’s auditor since 2017.
 
Peachtree Corners, Georgia
July 2, 2024
 



17





 



 

 
Video Display Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Assets

 
 
 
 
 
 
 
 



Current assets

 
 
 
 
 
 
 
 



Cash and cash equivalents

 
$
169
 
 
$
361
 



Accounts receivable, less allowance for bad debts of $3 and $6

 
 
747
 
 
 
486
 



Inventories, net

 
 
2,566
 
 
 
1,234
 



Contract assets

 
 
341
 
 
 
280
 



Prepaid expenses and other current assets

 
 
63
 
 
 
206
 



Assets of discontinued operations

 
 
-
 
 
 
1,606
 



Total current assets

 
 
3,886
 
 
 
4,173
 


 
 
 
 
 
 
 
 
 



Property, plant and equipment:

 
 
 
 
 
 
 
 



Buildings

 
 
753
 
 
 
707
 



Construction in progress

 
 
9
 
 
 
9
 



Machinery and equipment

 
 
3,515
 
 
 
3,274
 


 
 
 
4,277
 
 
 
3,990
 



Accumulated depreciation

 
 
(3,604
)
 
 
(3,437

)




Net property, plant and equipment

 
 
673
 
 
 
553
 


 
 
 
 
 
 
 
 
 



Right of use assets under operating leases

 
 
180
 
 
 
354
 



Other noncurrent assets

 
 
-
 
 
 
2
 



Assets of discontinued operations

 
 
-
 
 
 
278
 



Total assets

 
$
4,739
 
 
$
5,360
 



 
The accompanying notes are an integral part of these consolidated statements.
 

18

 

 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 



Liabilities and Shareholders’ Equity (Deficit)

 
 
 
 
 
 
 
 



Current liabilities

 
 
 
 
 
 
 
 



Accounts payable (including related party payables of ($141 and $616; Note 4)

 
$
927
 
 
$
1,202
 



Accrued liabilities

 
 
864
 
 
 
765
 



Contract liabilities

 
 
889
 
 
 
923
 



Current maturities of financing lease obligations

 
 
-
 
 
 
74
 



Current operating lease liabilities

 
 
180
 
 
 
185
 


Note payable to officers and directors, current (Note 4)
 
 
2,144
 
 
 
1,384
 



Liabilities of discontinued operations

 
 
-
 
 
 
937
 



Total current liabilities

 
 
5,004
 
 
 
5,470
 


 
 
 
 
 
 
 
 
 



Long-term operating lease liabilities

 
 
-
 
 
 
169
 



Long-term liability

 
 
146
 
 
 
-
 



Total liabilities

 
 
5,150
 
 
 
5,639
 


 
 
 
 
 
 
 
 
 



Shareholders’ Equity (Deficit)

 
 
 
 
 
 
 
 



Preferred stock, no par value – 10,000 shares authorized; none issued and outstanding

 
 
-
 
 
 
-
 



Common stock, no par value – 50,000 shares authorized; 9,732 issued; 5,878 outstandingat February 29, 2024 and February 28, 2023

 
 
7,293
 
 
 
7,293
 



Additional paid-in capital

 
 
281
 
 
 
281
 



Retained earnings

 
 
8,297
 
 
 
8,429
 



Treasury stock, 3,854 shares, at cost

 
 
(16,282
)
 
 
(16,282

)




Total shareholders’ equity (deficit)

 
 
(411
)
 
 
(279
)



Total liabilities and shareholders’ equity (deficit)

 
$
4,739
 
 
$
5,360
 



 
The accompanying notes are an integral part of these consolidated statements.
 



19





 



 
 
Video Display Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
 



 

February 29, 2024

 

February 28, 2023

 


 
 
 
 
 
 
 



Net sales

$
8,297
 
$
5,624
 



Cost of goods sold

 
5,314
 
 
4,118
 



Gross profit

 
2,983
 
 
1,506
 


 
 
 
 
 
 
 



Operating expenses

 
 
 
 
 
 



Selling and delivery

 
670
 
 
456
 



General and administrative

 
2,677
 
 
2,753
 


 
 
3,347
 
 
3,209
 



Operating loss

 
(364
)
 
(1,703

)



 
 
 
 
 
 
 



Other income (expense)

 
 
 
 
 
 



Interest expense, net

 
(4
)
 
(15

)




Gain on sale of fixed assets

 
-
 
 
2
 



Employee retention credit income

 
238
 
 
-
 



Gain on sale of subsidiaries

 
370
 
 
-
 



Other income, net

 
283
 
 
469
 



Total other income, net

 
887
 
 
456
 



Income (loss) from continuing operations before income taxes

 
523
 
 
(1,247
)



Income tax expense

 
-
 
 
-
 



Net income (loss) from continuing operations

$
523
 

$

(1,247
)



Loss from discontinued operations, net of income taxes

$
(655
)
$
(746
)



Net loss

$
(132
)
$
(1,993

)



 
 
 
 
 
 
 



Net income (loss) per share:

 
 
 
 
 
 


 
 
 
 
 
 
 



From continuing operations-basic

$
0.09
 
$
(0.21
)



From continuing operations-diluted

$
0.09
 
$
(0.21
)


 
 
 
 
 
 
 



From discontinued operations-basic

$
(0.11
)
$
(0.13
)



From discontinued operations-diluted

$
(0.11
)
$
(0.13
)


 
 
 
 
 
 
 


From net loss - basic
$
(0.02
)
$
(0.34
)


From net loss - diluted
$
(0.02
)
$
(0.34
)


 
 
 
 
 
 
 



Average shares outstanding – basic

 
5,878
 
 
5,878
 


 
 
 
 
 
 
 



Average shares outstanding – diluted

 
5,922
 
 
5,878
 



 
The accompanying notes are an integral part of these consolidated statements.
 



20





 



 
 
Video Display Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Defict)
(in thousands)
 
 



 
 

Common
Shares*
 

 
 

Share
Amount
 

 
 

Additional
Paid-in
Capital
 

 
 

Retained
Earnings
 

 
 

Treasury
Stock
 

 
 

Total
Shareholders’
Equity 
(Deficit)

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Balance, March 1, 2022

 
 
5,878
 
 
$
7,293
 
 
$
281
 
 
$
10,422
 
 
$
(16,282

)

 
$
1,714
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Net loss

 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,993

)

 
 
-
 
 
 
(1,993

)



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Balance, February 28, 2023

 
 
5,878
 
 
$
7,293
 
 
$
281
 
 
$
8,429
 
 
$
(16,282

)

 
$
(279
)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Net loss

 
 
-
 
 
 
-
 
 
 
-
 
 
 
(132

)

 
 
-
 
 
 
(132

)



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Balance, February 29, 2024

 
 
5,878
 
 
$
7,293
 
 
$
281
 
 
$
8,297
 
 
$
(16,282

)

 
$
(411

)




 
 
*Common Shares are shown net of Treasury Shares
 
The accompanying notes are an integral part of these consolidated statements.
 



21





 



 
 
Video Display Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
 



 
 

February 29,
2024

 
 

February 28,
2023

 



Operating Activities

 
 
 
 
 
 
 
 


Net loss
 
$
(132
)
 
$
(1,993

)




Adjustments to reconcile net loss to net cash used in provided by operating activities:

 
 
 
 
 
 
 
 


Loss from discontinued operations, net of tax
 
 
655
 
 
 
746
 


Gain on sale of subsidiaries
 
 
(370
)
 
 
-
 



Depreciation expense

 
 
167
 
 
 
189
 



Amortization of intangible assets

 
 
-
 
 
 
118
 



Provision for doubtful accounts

 
 
(3
)
 
 
3
 


Non-cash lease cost
 
 
174
 
 
 
110
 



Inventory related charges

 
 
88
 
 
 
76
 



Other

 
 
(6
)
 
 
(4
)



Changes in working capital items:

 
 
 
 
 
 
 
 



Accounts receivable

 
 
(258
)
 
 
(372
)



Employee retention credit refund receivable

 
 
-
 
 
 
463
 



Inventories

 
 
(1,122
)
 
 
338
 



Prepaid expenses and other assets

 
 
141
 
 
 
85
 



Accounts payable and accrued liabilities

 
 
345
 
 
 
406
 


Operating lease liabilities
 
 
(174
)
 
 
(110
)



Contract assets

 
 
(61
)
 
 
164
 



Contract liabilities

 
 
(34
)
 
 
(854

)



Net cash used in continuing operations operating activities
 
 
(590
)
 
 
(635
)


 
 
 
 
 
 
 
 
 



Investing Activities

 
 
 
 
 
 
 
 



Capital expenditures

 
 
(286
)
 
 
(39

)




Net cash used in continuing operations investing activities

 
 
(286
)
 
 
(39

)



 
 
 
 
 
 
 
 
 



Financing Activities

 
 
 
 
 
 
 
 



Proceeds from related party loans

 
 
760
 
 
 
926
 



Repayments of lease financing

 
 
(74
)
 
 
(88

)




Net cash provided by continuing operations financing activities

 
 
686
 
 
 
838
 


 
 
 
 
 
 
 
 
 



Discontinued Operations

 
 
 
 
 
 
 
 



Operating activities

 
 
(2
)
 
 
(5
)



Investing activities

 
 
-
 
 
 
-
 



Financing activities

 
 
-
 
 
 
-
 


Net cash used in discontinued operations
 
 
(2
)
 
 
(5
)


 
 
 
 
 
 
 
 
 



Net change in cash and cash equivalents

 
 
(192
)
 
 
159
 



Cash and cash equivalents, beginning of year

 
 
361
 
 
 
202
 



Cash and cash equivalents, end of year

 
 
169
 
 
 
361
 



 
The accompanying notes are an integral part of these consolidated statements.
See Note 12 for supplemental cash flow information.
 



22





 



 
Notes to Consolidated Financial Statements
 
 

Note 1. Summary of Significant Accounting Policies
 
Nature of Business
 
Video Display Corporation and subsidiaries (the “Company”, “our” or “we”) is a provider and manufacturer of video products, components, and systems for data display and presentation of electronic information media in various requirements and environments. The Company designs, engineers, manufactures, markets, distributes and installs technologically advanced display products and systems, from basic components to turnkey systems for government, military, aerospace, medical and commercial organizations. The Company serves the simulation, ruggedized displays, video wall design and installation, tempest products, tempest services.
 

Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions.

 

Fiscal Year
 
All references herein to “2024” and “2023” mean the fiscal years ended February 29, 2024 and February 28, 2023, respectively.

 

Basis of Accounting
 
“The FASB Accounting Standards Codification” (“FASB ASC”) establishes the source of authoritative accounting standards generally accepted in the United States of America (“U.S. GAAP”) recognized by the Financial Accounting Standards Board (“FASB”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The FASB amends the FASB ASC through Accounting Standards Updates (“ASUs”). ASCs and ASUs are referred to throughout these consolidated financial statements.

 

Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Examples include provisions for returns, warranty reserves, bad debts, valuations on deferred income tax assets, inventory valuation, other intangible assets, accounting for percentage of completion contracts and the length of product life cycles and fixed asset lives. Actual results could vary from these estimates.

 

Going Concern, Banking and Liquidity
 
The accompanying consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has sustained losses for four of the last five years. The accumulated losses reported has resulted from a combination of lower revenues at certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position is presented as follows:
 



 
 

February 29,
2024

 
 

February 28,
2023

 


 
 
 
 
 
 
 
 
 



Working capital

 
$
(1,117
)
 
$
(1,297
)



Liquid assets

 
$
169
 
 
$
361
 



 
Management’s plans with regard to improving working capital includes increasing marketing efforts in its ruggedized displays, and small specialty displays. The Company is developing new products for customers in the ruggedized display section of its business. The Company received orders for new ruggedized display products, engineered by the Company’s engineering department that were delivered this year and we have repeat orders coming in the next fiscal year. The effort to increase ruggedized products is ongoing and the engineering department is working on other new products which we expect to receive orders and ship in the next fiscal year. The Company has restructured the TEMPEST business to reduce costs and focus on the service side of the business and do product business as it presents itself. The Company sold its two business units in Kentucky, Lexel Imaging and Unicomp which did not have a viable plan to get to profitability.
 



23





 



 
The Company’s efforts to increase revenues by upgrading its sales and marketing efforts are showing results with an increase in the Company’s sales, especially in ruggedized products. These efforts have increased revenues from last year and will increase them even more in the upcoming fiscal year as the Company’s business typically has longer lead times from initial contact to a sale and including the amount of time to develop the products by engineering. The pandemic has also slowed down the process of obtaining new business as many of our government customers and potential customers are still working from home.  Furthermore, supply chain challenges have slowed down production of certain products due to long lead times on critical items of production, impacting cash flow.
 
The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The Company has not automatically replaced employees who have left the Company while it works to increase business. The Company reduced expenses further by closing the Tucker, Georgia facility on March 31, 2022.
 
If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
 
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve the operational effectiveness of the operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.

 

Revenue Recognition
 
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, and rugged displays. We exclude sales and usage-based taxes from revenue.
 
Our simulation and video wall systems are custom-built (using commercial off-the-shelf products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time based on labor hours incurred on each project based on the percentage of completion method. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable. Billings are generated based on specific contract terms, which might be a progress payment schedule, specific shipments, etc. Changes in job performance, manufacturing efficiency, final contract settlements, and other factors affecting estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
 
We recognize revenue related to our cyber secure products, and rugged displays at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
 
Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.
 
Contract assets represents revenue recognized in excess of amounts billed. Contract liabilities represents amounts collected prior to having completed performance on certain of our simulation or video wall system projects. The change in contract liabilities is due to the timing of customer deposits for orders offset by customer deposits recognized as revenue during the period. We expect to recognize revenue for any performance obligations within a twelve-month period and have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.
 



24





 



 
The following table presents the Company’s revenue disaggregated by division (in thousands):
 



 
 

2024

 
 

2023

 



Simulation and training (including video walls)

 
$
7,600
 
 
$
5,035
 



Cyber security

 
 
697
 
 
 
589
 



Total continuing operations

 
$
8,297
 
 
$
5,624
 



Discontinued operations

 
 
1,385
 
 
 
2,478
 



Total revenue

 
$
9,682
 
 
$
8,102
 



 

Cash and Cash Equivalents and Investments
 
We consider all highly liquid investments purchased with original maturities of three months or less to be cash or cash equivalents. Investment securities that are held by the Company, are bought and held principally for the purpose of selling them in the near term, and principally consist of equity securities and mutual funds. These equity investments are carried at fair value with realized gains or losses and changes in fair value included in operations.

 

Fair Value Measurements and Financial Instruments
 
The FASB’s fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
 


 

Level 1


Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.



 
 
 


 

Level 2


Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



 
 
 


 

Level 3


Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.



 
The Company’s financial instruments which are not measured at fair value on the consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt.  The estimated fair value of these financial instruments approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market. 

 

Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to general contractors, government agencies, manufacturers, and consumers of video displays. Management performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying credit loss experience to the current receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as payment history and overall trends in past due accounts compared to established thresholds. The Company monitors credit exposure and assesses the adequacy of the allowance for doubtful accounts on a regular basis. Historically, the Company’s allowance has been sufficient for any customer write-offs. Management believes accounts receivable are stated at amounts expected to be collected.
 



25





 



 
The following is a roll-forward of the allowance for doubtful accounts (in thousands):
 



 
 
 
 
 
 

Additions:

 
 
 
 
 
 
 
 
 



Description

 

Balance at
Beginning
of Period

 
 

Charged to
Costs and
Expenses

 
 

Deductions

 
 

Balance at
End of
Period

 



February 29, 2024

 
$
6
 
 
$
-
 
 
$
(3
)
 
$
3
 



February 28, 2023

 
$
3
 
 
$
3
 
 
$
-
 
 
$
6
 




 

Warranty Reserves
 
The Company records a liability for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available.
 
The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on claims experience. The Company considers actual warranty claims compared to net sales, then adjusts its reserve liability accordingly. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Management believes that historically its procedures have been adequate and does not anticipate that its assumptions are reasonably likely to materially change in the future.

 

Inventories
 
Inventories consist primarily of LCDs, computers digital projectors, video components, electronic parts and fabricated metal. Inventories are stated at the lower of cost (first-in, first-out) or market. The Company periodically reviews inventories for excess or obsolescence and writes down based on current economic conditions, historical sales quantities or patterns, and in some cases, specific risk of loss on specifically identified inventory. Such inventories are recorded at estimated realizable value net of the costs of disposal. 
 

Property, Plant and Equipment
 
Property, plant, and equipment are stated at cost. Depreciation is computed principally by the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings – ten to twenty-five years; Machinery and Equipment – five to ten years. In addition, leasehold improvements are amortized over the shorter of the useful life of the asset or the related lease term. Depreciation expense totaled approximately $167 thousand and $189 thousand for the fiscal years ended 2024 and 2023, respectively. Substantial betterments to property, plant, and equipment are capitalized and routine repairs and maintenance are expensed as incurred.

 

Business Combinations
 
When the Company acquires businesses, it applies the acquisition method of accounting and recognizes the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill, if any, would be measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Company to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. The Company must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company's financial condition and results of operations.
 
The Company typically measures customer relationship and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates, operating margins and attrition rates). If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If the Company's estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

 



26





 



 

Impairment of Long-lived Assets
 
Management reviews and assesses long-lived assets, which includes property, plant, and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset. The Company did not recognize any impairment charges associated with its long-lived or intangible assets.

 

Share-Based Compensation Plans
 
The Company accounts for employee share-based compensation under the fair value method and uses an option pricing model for estimating the fair value of stock options at the date of grant.

 

Share Repurchase Program
 
The Company has a share repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014 the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program. During the fiscal years ended February 29, 2024 and February 28, 2023, the Company did not repurchase any of its shares. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company on February 29, 2024.

 

Income Taxes
 
The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.
 
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.
 
The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of February 29, 2024, and February 28, 2023, the Company did not have any material unrecognized tax benefits.
 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income. The Company did not have any interest and penalties accrued as of February 29, 2024, and February 28, 2023.
 
The Company’s tax years ended back to fiscal 2021 remain open to examination by the Internal Revenue Service (“IRS”).
 




27





 



 

Earnings (Loss) per Share
 
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during each year. Shares issued or repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
 
The following is a reconciliation of basic earnings (loss) per share to diluted earnings (loss) per share for 2024 and 2023, (in thousands, except for per share data):
 



 
 

Net Income
(Loss)
 

 
 

Average Shares
Outstanding
 

 
 

Net (Loss)
Income Per
Share

 



2024

 
 
 
 
 
 
 
 
 
 
 
 



Basic –continuing operations

 
$
523
 
 
 
5,878
 
 
$
0.09
 


Diluted –continuing operations
 
 
523
 
 
 
5,922
 
 
 
0.09
 



Basic-discontinued operations

 
 
(655
)
 
 
5,878
 
 
 
(0.11
)


Diluted –discontinued operations
 
 
(655
)
 
 
5,922
 
 
 
(0.11
)


Basic - total
 
 
(132
)
 
 
5,878
 
 
 
(0.02
)



Diluted - total

 
$
(132

)

 
 
5,922
 
 
$
(0.02

)



 
 
 
 
 
 
 
 
 
 
 
 
 



2023

 
 
 
 
 
 
 
 
 
 
 
 



Basic-continuing operations

 
$
(1,247

)

 
 
5,878
 
 
$
(0.21

)



Diluted‑continuing operations
 
 
(1,247
)
 
 
5,878
 
 
 
(0.21
)



Basic-discontinued operations

 
 
(746
)
 
 
5,878
 
 
 
(0.13
)


Diluted‑discontinued operations
 
 
(746
)
 
 
5,878
 
 
 
(0.13
)



Basic- total

 
 
(1,993
)
 
 
5,878
 
 
 
(0.34
)


Diluted - total
 
$
(1,993

)

 
 
5,878
 
 
$
(0.34

)




 
Stock options convertible into 200,000 shares of the Company’s common stock were anti-dilutive in fiscal 2023 due to the net loss from continuing operations position and therefore, were excluded from the fiscal 2023 diluted earnings (loss) per share calculation.
 

Segment Reporting
 
An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the chief operating decision maker in order to make decisions about allocating resources, and for which discrete financial information is available. We operate and manage our business as one reportable segment. All of our divisions have similarities such as products and markets served; therefore, we believe they meet the criteria for aggregation under the applicable authoritative guidance and, as such, these operations are reported as one segment within the consolidated financial statements.
 
Sales to foreign customers were 3% of consolidated net sales for fiscal 2024 and 8% of consolidated net sales for fiscal 2023.

 

Recent Accounting Pronouncements 
 
Accounting Pronouncements Recently Adopted
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. Entities will apply the amendments using a modified retrospective approach. The adoption of ASU 2016-13 did not have a material impact on its financial statements and related disclosures.

 



28





 



 

 

Note 2. Inventories
 
Inventories consisted of the following (in thousands):
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Raw materials

 
$
1,317
 
 
$
839
 



Work-in-process

 
 
628
 
 
 
395
 



Finished goods

 
 
621
 
 
 
-
 


 
 
$
2,566
 
 
$
1,234
 



 
 
 
During fiscal 2024 and 2023, the Company wrote off or disposed of inventories of $0.1 million and $0.1 million, respectively.

 
 

Note 3. Uncompleted Contracts
 
Information relative to contracts in progress consisted of the following (in thousands):
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Costs incurred to date on uncompleted contracts

 
$
337
 
 
$
666
 



Estimated earnings recognized to date on these contracts

 
 
395
 
 
 
293
 



Total costs and estimated gross profit earned

 
 
732
 
 
 
959
 



Less billings to date

 
 
(1,280
)
 
 
(1,602

)




Contract liabilities, net

 
$
(548
)
 
$
(643

)




 
The following amounts are included in the accompanying consolidated balance sheets under the following captions (in thousands):
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Contract assets

 
$
341
 
 
$
280
 



Contract liabilities

 
 
(889
)
 
 
(923

)




Contract liabilities, net

 
$
(548
)
 
$
(643

)




 
As of February 29, 2024, and February 28, 2023, there were no production costs that exceeded the aggregate estimated cost of all in process and delivered units relating to contracts. Additionally, there were no claims outstanding that would affect the ultimate realization of full contract values. As of February 29, 2024 and February 28, 2023, there were no progress payments that had been netted against inventory.

 
 
 

Note 4. Notes Payable to Officers and Directors (Related Party Transactions)
 
In fiscal 2023, the Company increased borrowings by $926 thousand to fund working capital needs and owes an additional $256 thousand in Company rent that is due the CEO. The $1,384 thousand note contains no repayment terms and is classified as a current liability along with the $616 thousand rent owed.
 



29





 



 
In fiscal 2024, the Company increased borrowings by $760 thousand to fund working capital needs. The Company owed an additional $190 thousand in rent that was offset by the sale on December 1, 2023, of Lexel Imaging Systems, Inc. and Unicomp GA LLC by the reduction of $365 thousand for rent owed to Ordway properties in payment for those two businesses and by the $300 thousand owed by Lexel Imaging Systems to Honeyhill Properties, Inc, another company owned by the CEO. It was a liability on the books of Lexel Imaging Systems bought by Ordway properties, Inc. The net amount of rent owed to the CEO as of February 29, 2024, is $141 thousand. The $2,144 thousand note contains no repayment terms. The note payable and rent owed are included in the Company’s consolidated balance sheets as of February 29, 2024, as a notes payable to officers and directors and within accounts payable, respectively.

 
 

Note 5. Accrued Expenses and Warranty Obligations
 
The following provides a reconciliation of changes in the Company’s warranty reserve for fiscal years 2024 and 2023. The Company provides no other guarantees.
 
 



 
 

2024

 
 

2023

 



Balance at beginning of year

 
 
4
 
 
 
4
 



Warranty costs incurred

 
 
-
 
 
 
-
 



Balance at end of year

 
 
4
 
 
 
4
 



 
 
Accrued liabilities consisted of the following (in thousands):
 



 
 

February 29, 
2024

 
 

February 28,
2023

 


 
 
 
 
 
 
 
 
 



Accrued compensation and benefits

 
$
472
 
 
$
487
 



Accrued payroll taxes

 
 
11
 
 
 
19
 



Accrued commissions

 
 
266
 
 
 
16
 



Accrued property taxes

 
 
37
 
 
 
30
 



Accrued warranty

 
 
4
 
 
 
4
 



Accrued other

 
 
74
 
 
 
209
 


 
 
$
864
 
 
$
765
 



 

 

Note 6. Stock Options
 
The Video Display Corporation 2006 Stock Incentive Plan (“Plan”) provides that options to purchase up to 500,000 shares of the Company’s common stock may be granted and up to 100,000 restricted common stock shares may be awarded. Options may not be granted at a price less than the fair market value, determined on the day the options are granted. Options granted to a participant who is the owner of ten percent or more of the common stock of the Company may not be granted at a price less than 110% of the fair market value, determined on the day the options are granted. The exercise price of each option granted is fixed and may not be re-priced. The life of each option granted is determined by the plan administrator, but may not exceed the lesser of seven years from the date the participant has the vested right to exercise the option, or nine years from the date of the grant. The life of an option granted to a participant who is the owner of ten percent or more of the common stock of the Company may not exceed five years from the date of grant. All full-time or part-time employees, and Directors of the Company, are eligible for participation in the Plan. In addition, any consultant or advisor who renders bona fide services to the Company, other than in connection with the offer or sale of securities in a capital-raising transaction, is eligible for participation in the Plan. The Plan may be terminated by action of the Board of Directors.
 



30





 



 
Information regarding the stock option plans is as follows:
 



 
 

Number of Options
(in thousands)

 
 

Average Exercise Price
Per Share

 



Outstanding at March 1, 2022

 
 
200
 
 
$
0.82
 



Granted

 
 
-
 
 
 
-
 



Forfeited or expired

 
 
-
 
 
 
-
 


 
 
 
 
 
 
 
 
 



Outstanding at February 28, 2023

 
 
200
 
 
$
0.82
 



Granted

 
 
-
 
 
 
-
 



Forfeited or expired

 
 
-
 
 
 
-
 


 
 
 
 
 
 
 
 
 



Outstanding at February 29, 2024

 
 
200
 
 
$
0.82
 


 
 
 
 
 
 
 
 
 


Options exercisable
 
 
 
 
 
 
 
 



February 28, 2023

 
 
200
 
 
$
0.82
 



February 29, 2024

 
 
200
 
 
$
0.82
 



 



 
 

Options Outstanding

 
 
Options Exercisable
 



Range
of Exercise Prices

 

Number
Outstanding at 
February 29, 2024 (in 
thousands)

 
 

Weighted Average
Remaining 
Contractual Life
(in years)

 
 

Weighted
Average
Exercise Price

 
 

Number
Exercisable at 
February 29, 2024
(in thousands)

 
 

Weighted
Average
Exercise Price

 



$0.80

-
$1.00
 
 
200
 
 
 
4.0
 
 
$
0.82
 
 
 
200
 
 
$
0.82
 



 
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the term. The term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock. The Company calculates the historic volatility based on the weekly stock closing price, adjusted for dividends and stock splits. The fair value of the stock options is based on the stock price at the time the option is granted, the annualized volatility of the stock and the discount rate at the grant date. No options were granted in fiscal 2024 or 2023.
 
For the fiscal year ended February 29,2024, and February 28, 2023, there was no expense recognized on options as all options outstanding were fully vested.

 
 

Note 7. Income Taxes 
 
The rate reconciliation related to income taxes differs from the amount computed by applying the federal statutory rate of 21% is as follows (in thousands):
 



 
 

Fiscal Year Ended

 


 
 

February 29, 
2024

 
 

February 28,
2023

 


 
 
 
 
 
 
 
 
 



Statutory U.S. federal income tax rate

 
$
154
 
 
$
(212

)




State income taxes, net of federal benefit

 
 
(29
)
 
 
(30

)




Valuation allowance

 
 
88
 
 
 
24
 



Other

 
 
(213
)
 
 
218
 



Taxes at effective income tax rate

 
$
-
 
 
$
-
 



 
Significant components of the Company’s net deferred income tax assets consist of the following (in thousands):
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 



Deferred tax assets (liabilities):

 
 
 
 
 
 
 
 



Federal net operating loss carry-forward

 
$
4,707
 
 
$
4,612
 



State net operating loss carry-forward

 
 
1,033
 
 
 
746
 



Federal tax credit carry-forward

 
 
318
 
 
 
318
 



Uniform capitalization costs

 
 
57
 
 
 
66
 



Accrued liabilities

 
 
17
 
 
 
17
 



Right of use assets

 
 
(43
)
 
 
(85

)




Lease liabilities

 
 
43
 
 
 
85
 



Basis difference of property, plant and equipment

 
 
(103
)
 
 
(121

)




Allowance for doubtful accounts

 
 
1
 
 
 
1
 



Amortization of intangibles

 
 
68
 
 
 
74
 



Other

 
 
(4
)
 
 
(27

)




Valuation allowance

 
 
(6,094
)
 
 
(5,686

)




Net deferred tax assets

 
$
-
 
 
$
-
 



 



31





 



 
Deferred tax assets have been reduced by a valuation allowance because, in the opinion of management, it is more likely than not that the Company’s deferred tax assets will not be realized. The Company has determined that a 100% valuation allowance is needed due to historical cumulative taxable net operating losses and the limited taxable income related to the carry back periods. The Company has available federal and state net operating loss carry forwards of $22.0 million and $23.6 million, respectively as of February 29, 2024. Net operating losses generated prior to taxable years beginning before January 1, 2018 may be carried forward and expire at various dates commencing in fiscal 2034, if not used. Net operating losses generated in taxable years beginning after December 31, 2017 and beginning before January 1, 2021 may be carried forward indefinitely. Net operating losses generated in taxable years beginning after December 31, 2020 may be carried for indefinitely but are limited to 80% of taxable income.

 
 

Note 8. Discontinued Operations
 
On December 1, 2023, the Company sold their wholly-owned subsidiaries Lexel Imaging Systems, Inc and Unicomp GA LLC to Ordway Properties LLC in a stock deal for $365,000. At the closing, the buyer paid the seller by the reduction of debt shown as rent payable owed by Video Display Corporation to Ordway Properties LLC. The Company recognized a gain on the sale of $370,000. Lexel Imaging Systems, Inc. had net sales of $0.7 million and a net loss of $0.6 million and Unicomp GA LLC had net sales of $0.7 million and a net loss of $0.2 million before the sale.
 
Both of these companies’ net sales, expenses and net losses are being shown as discontinued operations per ASC 205-20-45 “Reporting Discontinued Operations”. The assets, liabilities, operating losses and cash flows from these businesses are reflected as discontinued operations in the consolidated financial statements for all periods presented. The Company has reclassified results that were previously included in continuing operations as discontinued operations for these businesses.
 
 



 
 

February 29, 2024

 
 

February 28, 2023

 


 
 
 
 
 
 
 
 
 



Net sales

 
$
1,385
 
 
$
2,478
 



Cost of goods sold

 
 
1,582
 
 
 
2,811
 



Gross profit

 
 
(197
)
 
 
(333
)


 
 
 
 
 
 
 
 
 



Operating expenses

 
 
 
 
 
 
 
 



Selling and delivery

 
 
-
 
 
 
(10
)



General and administrative

 
 
533
 
 
 
752
 


 
 
 
533
 
 
 
742
 



Operating loss

 
 
(730
)
 
 
(1,075
)


 
 
 
 
 
 
 
 
 



Other income (expense)

 
 
 
 
 
 
 
 



Other, net

 
 
75
 
 
 
329
 


 
 
 
75
 
 
 
329
 



Loss from discontinued operations

 
$
(655
)
 
$
(746
)



 
The balance sheet of the discontinued operations is summarized below (in thousands):
 



 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Assets

 
 
 
 
 
 
 
 



Current Assets

 
 
 
 
 
 
 
 



Cash

 
$
-
 
 
$
39
 



Accounts receivable, less allowance for

 
 
 
 
 
 
 
 



Bad debts of $0 and $0, respectively

 
 
-
 
 
 
343
 



Inventories, net

 
 
-
 
 
 
1,224
 



Total current assets

 
 
-
 
 
 
1,606
 


 
 
 
 
 
 
 
 
 



Property, plant and equipment:

 
 
 
 
 
 
 
 



Buildings

 
 
-
 
 
 
82
 



Machinery and equipment

 
 
-
 
 
 
2,110
 


 
 
 
-
 
 
 
2,192
 



Accumulated depreciation

 
 
-
 
 
 
(2,041
)



Net property, plant and equipment

 
 
-
 
 
 
151
 


 
 
 
 
 
 
 
 
 



Other assets

 
 
-
 
 
 
127
 



Total assets

 
$
-
 
 
$
1,884
 


 
 
 
 
 
 
 
 
 


Liabilities
 
 
 
 
 
 
 
 


Current liabilities
 
 
 
 
 
 
 
 


Accounts payable
 
$
-
 
 
$
427
 


Accrued liabilities
 
 
-
 
 
 
331
 


Contract liabilities
 
 
-
 
 
 
51
 


Current lease liabilities
 
 
-
 
 
 
128
 


Total current liabilities
 
 
-
 
 
$
937
 


Total liabilities
 
$
-
 
 
$
937
 



 

 
 

Note 9. Benefit Plan
 
The Company maintains a defined contribution plan that is available to all employees. The Company did not make a contribution in the fiscal year ended February 29, 2024 or February 28, 2023 to the Company’s 401(k) plan.

 



32





 



 
 

Note 10. Leases
 
Operating Leases
 
The Company leases its office space and manufacturing facilities and equipment under operating lease agreements. The base lease terms expire at various dates through 2025. While each of the leases include renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities. The Company has one finance lease.
 
Balance sheet information related to operating leases is as follows (in thousands):
 



 
 

February 29, 2024

 
 

February 28, 2023

 



Operating lease right-of-use assets

 
$
180
 
 
$
354
 



Current portion of operating lease liabilities

 
$
180
 
 
$
185
 



Noncurrent portion of operating lease liabilities

 
 
-
 
 
 
169
 



Total operating lease liabilities

 
$
180
 
 
$
354
 



 
Rent expense totaled approximately $0.2 million for fiscal 2024 and $0.2 million for fiscal 2023. The Company did not have any variable lease costs or short-term lease costs for the years ended February 29, 2024 and February 28, 2023.
 
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $0.2 for fiscal 2024 and $0.2 million for fiscal 2023. On September 9, 2021, the Company exercised an option to terminate the lease on its Tucker, Georgia location effective March 31, 2022. The terms of the option to terminate included prepaying the remaining rent through March 31, 2022, an additional penalty of three month’s rent and prepaying the property taxes for 2021 and for the first three months of 2022. The Company did not modify any existing operating leases or execute any new operating leases during the fiscal year ended February 28, 2024.
 
Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
 



 
 

February 29, 2024

 
 

February 28, 2023

 



Weighted average remaining lease term (in years)

 
 
1.0
 
 
 
1.6
 



Weighted average discount rate

 
 
6

%

 
 
6

%




 
 
The following table summarizes the maturity of the Company’s operating lease liabilities as of February 29, 2024 (in thousands):
 




Fiscal Year

 

Amount

 


 
 
 
 
 



2025

 
$
190
 



Total operating lease payments

 
$
190
 



Less imputed interest

 
 
(10
)



Total operating lease liabilities

 
$
180
 



 
Financing Leases
 
The Company had one financing lease entered into on November 23, 2020 for Tempest testing equipment for $277,000. The lease expired on December 1, 2023 and the incremental borrowing rate on the lease is 12.5%.
 
Balance sheet information related to financing lease is as follows (in thousands):
 



 
 

February 29, 2024

 
 

February 28, 2023

 



Machinery and equipment

 
$
277
 
 
$
277
 



Less: Accumulated depreciation

 
 
(277

)

 
 
(208

)




Machinery and equipment, net

 
$
-
 
 
$
69
 


 
 
 
 
 
 
 
 
 



Current portion of financing lease liabilities

 
$
-
 
 
$
74
 



Noncurrent portion of financing lease liabilities

 
 
-
 
 
 
-
 



Total financing lease liabilities

 
$
-
 
 
$
74
 



 
Related Party Leases
 
Included in the operating lease section above are leases for manufacturing and warehouse facilities leased from Southeast Metro Savings, LLC and Honeyhill Properties, LLC (entities which are controlled by the Company’s chief executive officer) under operating leases expiring at various dates through 2025. Rent expense under these leases totaled approximately $0.2 million in fiscal 2024 and $0.3 million in fiscal 2023.
 



33





 



 
Future minimum rental payments due under leases with related parties are as follows (in thousands):
 




Fiscal Year

 

Amount

 



2025

 
$
190
 


 
 
$
190
 



 

 

Note 11. Concentrations of Risk and Major Customers
 
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, accounts receivable and historically investments prior to liquidation. At times, such cash in banks are in excess of the FDIC insurance limit.
 
The Company sells to a variety of domestic and international customers on an open-unsecured account basis, in certain cases requiring letters of credit. These customers principally operate in the medical, military, and avionics industries. The Company had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs, which comprised approximately 86% and 51% of consolidated net sales in fiscal 2024 and 2023, respectively. Sales to foreign customers were 3% of consolidated net sales in fiscal 2024 and 8% of consolidated net sales in fiscal 2023. The Company had two customers who comprised more than 10% of the Company’s sales in fiscal year 2024 (53% and 12%).
 
The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, by monitoring customers' credit exposure on a daily basis and requiring letters of credit for certain sales. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

 
 

Note 12. Supplemental Cash Flow Information
 



 
 

Fiscal Year Ended
(in thousands)

 


 
 

February 29,

 
 

February 28,

 


 
 

2024

 
 

2023

 



Cash paid for:

 
 
 
 
 
 
 
 



Interest

 
$
4
 
 
$
15
 


 
 
 
 
 
 
 
 
 



Non-cash activity:

 
 
-
 
 
 
-
 



 
 
Selected Quarterly Financial Data (unaudited)
 
The following table sets forth selected quarterly consolidated financial data for the fiscal years ended February 29, 2024 and February 28, 2023, respectively. The summation of quarterly net income (loss) per share may not agree with annual net income (loss) per share due to rounding. Excludes discontinued operations:
 



 
 

2024

 


 
 

First 
Quarter

 
 

Second 
Quarter

 
 

Third
Quarter 

 
 

Fourth
Quarter 

 


 
 

(in thousands, except per share amounts)

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Net sales

 
$
1,934
 
 
$
1,897
 
 
$
1,728
 
 
$
2,738
 



Gross profit (loss)

 
 
626
 
 
 
742
 
 
 
675
 
 
 
940
 



Net income (loss)

 
 
(166

)

 
 
608
 
 
 
(106

)

 
 
187
 



Basic net income (loss) per share

 
$
(0.02

)

 
$
0.10
 
 
$
(0.02

)

 
$
0.03
 



Diluted net income (loss) per share

 
$
(0.02

)

 
$
0.10
 
 
$
(0.02

)

 
$
0.03
 



 



34





 



 



 
 

2023

 


 
 

First 
Quarter

 
 

Second 
Quarter

 
 

Third 
Quarter

 
 

Fourth
Quarter 

 


 
 

(in thousands, except per share amounts)

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Net sales

 
$
2,124
 
 
$
1,308
 
 
$
1,156
 
 
$
1,036
 



Gross profit

 
 
658
 
 
 
427
 
 
 
335
 
 
 
86
 



Net income (loss)

 
 
(107

)

 
 
167
 
 
 
(422

)

 
 
(885

)




Basic net income (loss) per share

 
$
(0.02

)

 
$
0.03
 
 
$
(0.07

)

 
$
(0.15

)




Diluted net income (loss) per share

 
$
(0.02

)

 
$
0.03
 
 
$
(0.07

)

 
$
(0.15

)




 

35

 

 

 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.         
 
Item 9A. Controls and Procedures.
 
Evaluation of disclosure controls and procedures 
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (February 29, 2024). Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as the principal executive and financial officers, respectively, to allow final decisions regarding required disclosures.  Based on their evaluation of the Company’s disclosure controls and procedures as of February 29, 2024, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below.
 
The required certifications of our Chief Executive Officer and our Chief Financial Officer are included as exhibits to this Annual Report on Form 10-K. The disclosures set forth in this Item 9A contain information concerning the evaluation of our disclosure controls and procedures, internal control over financial reporting and changes to internal control referred to in those certifications. Those certifications should be read in conjunction with this Item 9A for a more complete understanding of the matters covered by the certifications.
 
 
Management's Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
 
All internal controls, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of February 29, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013 Framework) entitled "Internal Control- Integrated Framework.” Based on such assessment, our management concluded that as of February 29, 2024, our internal control over financial reporting was not effective due to a material weakness in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected in a timely basis.
 
The Company lacks accounting staff with the appropriate level of technical capabilities to perform the control activities in the financial statement close process with a sufficient level of precision. Specifically, management had not maintained effective controls over the financial reporting process, including management review controls over key disclosures and financial reporting schedules.
 
We are considering the extent of the procedures to implement in order to remediate the material weakness described above.
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 



36





 



 
Change in Internal Control Over Financial reporting
 
Except for the material weakness identified during fiscal 2024, there was no changes in our internal controls over financial reporting during the fourth quarter of fiscal 2024 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
 
 
Inherent limitations on the effectiveness of controls 
 
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
 
 
 

Item 9B. Other Information.
 
None.

 
 

37

 

 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance.
 
The information contained in Video Display Corporation’s Proxy Statement to be filed within 120 days of the Company’s 2024 fiscal year end (the “2024 Proxy Statement”), with respect to directors and executive officers of the Company under the headings “Election of Directors” and “Executive Officers”, is incorporated herein by reference in response to this item; provided, however, that the information contained in the 2024 Proxy Statement under the heading “Compensation and Stock Option Committee Report” or under the heading “Performance Graph” shall not be incorporated herein by reference.
 
Item 11. Executive Compensation.
 
The information contained in the 2024 Proxy Statement under the heading, “Executive Compensation and Other Benefits”, with respect to executive compensation, is incorporated herein by reference in response to this item.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The information contained in the 2024 Proxy Statement under the headings “Common Stock Ownership” and “Executive Compensation and Other Benefits”, is incorporated herein by reference in response to this item.
 
Item 13. Certain Relationships and Related Transactions, and Director Independence.
 
The information contained in the 2024 Proxy Statement under the heading, “Transactions with Affiliates”, is incorporated herein by reference in response to this item.
 
Item 14. Principal Accounting Fees and Services.
 
The information contained in the 2024 Proxy Statement under the heading, “Audit Fees and All Other Fees” is incorporated herein by reference in response to this item.
 

38

 

 
PART IV
 
Item 15. Exhibits, Financial Statement Schedules.
 



(a)


The following documents are filed as part of this Report:



 
Financial Statements:
 
The following consolidated financial statements of the Company and its consolidated subsidiaries and the Reports of the Independent Registered Public Accounting Firms are included in Part II, Item 8.
 
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 29, 2024, and February 28, 2023.
Consolidated Statements of Operations - Fiscal Years Ended February 29, 2024, and February 28, 2023.
Consolidated Statements of Shareholders' Equity (Deficit) – Fiscal Years Ended February 29, 2024, and February 28, 2023.         
Consolidated Statements of Cash Flows - Fiscal Years Ended February 29, 2024, and February 28, 2023.
Notes to Consolidated Financial Statements
 



(b)


Exhibits



 



Exhibit 
Number

 
Exhibit Description


 
 
 



3(a)

 

Articles of Incorporation of the Company (incorporated by reference to Exhibit 3A to the Company’s Registration Statement on Form S-18 filed January 15, 1985).




3(b)

 

By-Laws of the Company (incorporated by reference to Exhibit 3B to the Company’s Registration Statement on Form S-18 filed January 15, 1985).




10(a)

 

Lease dated April 1, 2015 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia (incorporated by reference to Exhibit 10(c) to the Company’s 2015 Annual Report on Form 10-K.)




10(b)

 

Lease dated February 19, 2015 by and between Registrant (Lessee) and Ordway Properties LLC (Lessor) with respect to premises located at 5155 King Street, Cocoa, FL. (incorporated by reference to Exhibit 10(g) to the Company’s 2015 Annual Report on Form 10-K.)




10(c)

 

Video Display Corporation 2006 Stock Incentive Plan. (incorporated by reference to Appendix A to the Company’s 2006 Proxy Statement on Schedule 14A)




21

 

Subsidiary Companies



23.1
 
Consent of Hancock Askew & Co., LLP



31.1

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




31.2

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




32.1

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




101.INS

 

Inline XBRL Instance Document




101.SCH

 

Inline XBRL Taxonomy Extension Schema Document




101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document




101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document




101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document




101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document



104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document


 



39





 



 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 



Date:  July 2, 2024


VIDEO DISPLAY CORPORATION



 
 
 



 


By:


/s/ Ronald D. Ordway




 

 

Ronald D. Ordway




 

 

Chairman of the Board and




 

 

Chief Executive Officer



 
POWER OF ATTORNEY
 
Know all men by these presents, that each person whose signature appears below constitutes and appoints Ronald D. Ordway as attorney-in-fact, with power of substitution, for him in any and all capacity, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 



Signature -Name


Capacity


Date



 
 
 



/s/ Ronald D. Ordway


Chief Executive Officer,


July 2, 2024




Ronald D. Ordway


Treasurer and Director

 



 


(Principal Executive Officer)

 


 
 
 



/s/ Gregory L. Osborn


Chief Financial Officer and Director


July 2, 2024




 Gregory L. Osborn


(Principal Financial Officer)

 


 
 



40



